Wednesday, December 19, 2012

Credit Suisse Resuscitates TVIX (VIX; TVIX; UVXY)

To what end I wonder?
From VIX and More:The Resurrection of TVIX

It has been quite a year for TVIX,
formally known as the VelocityShares Daily 2x VIX Short-Term ETN. At
the beginning of 2012, TVIX was trading about a million shares per day
and was known to only a small group of investors that followed the VIX exchanged-traded products
space. By the middle of February, however, volume in TVIX had soared to
40 million shares, making it the volume leader in the VIX ETP space. It
seemed as if TVIX had made the jump from relative obscurity to
headline-grabbing rock star status with stunning swiftness and almost no
effort.

TVIX soon became a victim of its own success, a fact which was confirmed when Credit Suisse (CS) announced on February 21st that it had “temporarily suspended further issuances of the VelocityShares Daily 2x VIX Short-Term ETNs (TVIX) due to internal limits on the size of the ETNs.” I covered this story
and the subsequent fallout in depth and will not repeat the particulars
here (see links below for more information) other than to note that the
absence of a supply of new creation units led to a substantial
imbalance between supply and demand, with the result that the price of
TVIX soared relative to its Intraday Indicative Value
(a real-time estimate of an ETP’s fair value, based on the most recent
prices of its underlying securities) and became almost completely
unhinged from any reasonable estimate of fair value. The extreme price
dislocation persisted for a little over a month, until Credit Suisse agreed to reopen the issuance of creation units “on a limited basis” on March 22nd.
To make a long story short, the price collapsed by more than 50% in two
days in the wake of this announcement (see the gap down in the chart
below), many investors suffered huge losses and a slew of law suits were
not far behind....MORE